Claims firms face tough new regime as MoJ cracks down

Cold-calling and wild promises could lead to compensation rulings

Claims management companies (CMCs) could be forced to pay back millions to consumers under new plans announced yesterday by the Ministry of Justice.

The MoJ has handed over responsibility for dealing with complaints about the firms, which handle compensation claims in areas such as payment protection insurance mis-selling and personal injury, on to the Legal Ombudsman. The change will mean CMCs could be forced to pay up to £30,000 in compensation to disadvantaged consumers, and it is believed the limit could be increased to £50,000.

At present CMC customers must lodge complaints with the Ministry of Justice, which regulates the industry but does not have the power to arrange compensation. The new rules – to be enforced from 2013 – will give consumers the chance to claim redress against rogue CMC firms for the first time.

However, the MoJ will continue to regulate the industry through its Claims Management Regulations Unit. Kevin Rousell, the head of the unit, said: "We will continue to target those CMCs who do not comply and we will work in partnership with the Legal Ombudsman to root out those CMCs that take advantage of consumers."

The MoJ has been cracking down on CMCs following public anger over a rising tide of unwanted texts and cold-calling from unscrupulous firms aiming to profit from the £10bn bank mis-selling scandal relating to payment protection insurance (PPI).

Rogue firms make promises of payouts for consumers, even though many are not even eligible for compensation. The Financial Ombudsman warned this year that people in line for compensation had no need to use CMCs as they could make claims themselves without going through a third party.

It forecast about £50m of PPI compensation it will award this year will needlessly go to claims management companies. CMCs charge about 25 per cent of the compensation payout.

Many CMCs also encourage people – through adverts on TV, newspapers and the internet – to sue for personal injury compensation, and for other losses, even though they may have not been involved in an accident.

The MoJ has banned or shut down more than 700 rogue CMCs but there are still around 3,000 in existence in England and Wales. Mr Rousell said the MoJ would now focus on improving standards and taking wider action on rule-breaking CMCs.

Last week it published proposals to ban CMCs from taking fees from customers without a written contract. It also wants to force firms to state that they are regulated by the claims management regulator rather than by the MoJ, to avoid giving the impression that they are endorsed by the government.

Chris Lawrenson, the head of legal services at the Building Societies Association, said urgent action was needed to crack down on rogue firms. "The CMCs operating in the PPI sector are generating by far the most consumer complaints, 74 per cent according the Ministry of Justice," he said. "Worse still, the vast majority of these complaints are made against just 15-20 firms out of the 1,000-plus authorised."

Richard Lloyd at Which? said: "We want to see the Government do more to clean up the CMC industry. We want a ban on upfront fees and cold-calling, and for CMCs to be required to publish online all of their terms and conditions, fees and charges."

Ian Barlow, a director of CMC firm Money Boomerang, hit back at the criticisms. "For thousands of customers, the claims management industry provides a valuable service by simplifying what can be a difficult process," he said.

He admitted that rogue firms had given the sector a bad name. "The CMC industry, particularly in the PPI sector, has occasionally shot itself in the foot."

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
The Doctor and Clara have their first real heart to heart since he regenerated in 'Deep Breath'
TV
Arts and Entertainment
James Hewitt has firmly denied being Harry’s father
arts + ents
Arts and Entertainment
Jamie Oliver
filmTV chef Jamie Oliver turned down role in The Hobbit
News
The official police photograph of Dustin Diamond taken after he was arrested in Wisconsin
peopleDownfall of the TV star charged with bar stabbing
PROMOTED VIDEO
Life and Style
tech
Arts and Entertainment
Jeremy Clarkson, left, and Richard Hammond upset the locals in South America
tvReview: Top Gear team flee Patagonia as Christmas special reaches its climax in the style of Butch and Sundance
News
people
Sport
Ashley Barnes of Burnley scores their second goal
footballMan City vs Burnley match report
News
news
Arts and Entertainment
Peter Mayhew as Chewbacca alongside Harrison Ford's Han Solo in 'Star Wars'
film
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
i100
Arts and Entertainment
Man of action: Christian Bale stars in Exodus: Gods and Kings
film
Life and Style
Apple showed no sign of losing its talent for product launches with the new, slightly larger iPhone 6 making headlines
techSecurity breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Arts and Entertainment
Catherine (Sarah Lancashire) in Happy Valley ((C) Red Productions/Ben Blackall)
TV
Arts and Entertainment
Clueless? Locked-door mysteries are the ultimate manifestation of the cerebral detective story
booksAs a new collection of the genre’s best is published, its editor explains the rules of engagement
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?